Quiz2_F10 - G (or MRS GW ) = 2. Comparing the MV (or MRS)...

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3550 F10 Quiz 2 Last Name: First Name: 1. Assume Paula consumes Gasoline (P G = \$5) and Water (P W = \$2) and has an income of \$120. a. (3 points) Graph Paula’s budget constraint below noting the relevant intercepts (putting Gasoline on the horizontal axis ). What is the slope of the budget constraint and what economic relevance does it have for Paula? b. (5 points) On the same graph , draw in Paula’s current indifference curve assuming for her current bundle (with 14 gasoline), the MV
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Unformatted text preview: G (or MRS GW ) = 2. Comparing the MV (or MRS) and the price ratio, explain whether Paula is currently maximizing her utility or not. If she is not, explain her decision rule for determining whether (and how) she should change her consumption. c. (2 points) What happens to the budget line if the \$1 tax applies only to purchases of gasoline in excess of 16 units? (Do not put an indifference curve for this problem)...
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This note was uploaded on 03/14/2012 for the course ECON 2243 taught by Professor Henryfors during the Spring '12 term at Abant İzzet Baysal University.

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